The value of constraints in Path-Dependence behavior Formulario 2 Do not cite

Miguel Acosta* December, 2010

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Ideas about constraints in path dependence behavior

Constraints matters in decision behavior. Mathematically, as they become binding the rst order conditions must change using the Lagrange function. In path dependence theory constraints also may play an interesting rol, moreover when the same constraint may have dierent value depending on the view of each agent. One of the most classical examples in path-dependence corresponds to the victory of QWERTY over their keyboard competitors. In 1932 August Dvorak patented his keyboard arrangement and he claimed that the increase in typing eciency would amortize the cost of retraining people within a period of ten days. Like others, Dvorak design received the same rejection of costumers in favor of QWERTY. From the economic point of view, this means a nonrational behavior in which agents use an inecient technology (David, [4]). Path dependence appears everywhere, this means that we can nd agents being dependent at macro, meso or microeconomic level (Schreyogg and Sydow, [6]). In macroeconomics, it is surprising that countries with similar initial conditions have showed diverse economic performances. Indeed some countries in Latin America present a path dependent income distribution with almost no change over the last four decades (Acosta, [1]) whereas countries in Eastern Europe are being included as developed countries within the same period. At meso level, the example of QWERTY ts well, and the literature is plenty of many interesting examples. Besanko, et. al. [3] propose that because of the existence of sunk cost an established American steel rm will be lock-in to old technology. Lets consider for the micro level the rate of divorce in India. This rate was in 2002 just 1.1 per cent of marriages, the lowest rate in the world. The families in India presents clearly a path dependence in contrast to those in Sweden or Unites States where the rate of divorce are the highest in the world.
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For this three cases of path dependence, it will be possible to identify inuence of past events over future choices. More over, in all of them we will nd the phases associated to path dependence (phase I preformation; phase II Formation; and, phase III Lock-in) (Schreyogg and Sydow, [6]). But what seems illustrative is that each of these cases have a clear counterexample in which some constraint is viewed in a complete dierent way. Our world is far from the rationality assumption made by classical economic theory (Mas-Colell et. al., [5]). When an individual is taking a decision, she never see the whole the set of all possibilities of consumption (X) (Ariely, [?]). The same is true for the constraints faced by individuals, in real world constraints appear in dierent ways for individuals. Nevertheless, binding constraints may lock-in organizations. This means, that even when path dependence is viewed as a dynamic process its roots would be analyzed also in statics terms. Path dependence considering constraints in the example Besanko, et. al. [3] would be understood by binding sunk cost for the established American steel rm. On the other hand, as Besanko proposes, a Japanese rm building a greeneld facility would adopt new technology because sunk cost is a not binding constraint. Then questions like: Which are the constraints binding in India that result in a long term marriage? Which are those constraints in Sweden? would be extended for any path dependent situation. Analyzing how constraints are constructed and how constraints are valuated by individuals would help to a better understanding path dependence behavior.

Referencias
[1] Acosta, Miguel, (2002), Condiciones Iniciales en la Curva de Lorenz: un anlisis a partir de la Catenaria, Cuestiones Econmicas, Central Bank of a o Ecuador, Vol 18, No. 2:3. [2] Ariely, D., (2008), Predictably irrational The Hidden Forces That Shape Our Decisions, HarperCollins. [3] Besanko, D., D. Dranove, M. Shanley and S. Schaefer, (2007), Economics of Strategy, John Wiley & Sons. [4] David, Paul A., (1985), Clio and the Economcis of QWERTY, The American Economic Review, Vol. 75, No. 2. [5] Mas-Colell, A., M. Whinston, y J. Green,(1995), Microeconomic Theory, Oxford University Press. [6] Schreyogg, G. and J. Sydow (Editors), (2009), The Hidden Dynamics of Path Dependence Institutions and Organizations, Palgrave Macmillan.